By the end of this decade, the U.S. will be the largest wine consuming nation in the world, according to respected wine market analyst Jon Fredrikson of Gomberg, Fredrikson and Associates.
That's total consumption, not per capita consumption where the U.S. lags far behind European countries.
When the U.S. passes France and Italy as the largest wine consuming country on the planet, the big question will be how much of the world's No. 1 wine market will be supplied by California and U.S. wines and how much will be taken by the so-called New World wines from Australia, Argentina, Chile, South Africa and other non-European nations.
If 2004 figures are any indication, they could hold the lion's share of the market if New World wines continue to flood the U.S. at the pace of recent years. Fredrikson told the Unified Wine and Grape Symposium in Sacramento, Calif., recently he does not see the Australian wine invasion of America to ever retreat. It may slow down with changing currency exchange rates, but it will not likely never fall back.
Australia may not take 100 percent of the table wine market, but Fredrikson would not hazard a guess at what the ceiling might be for wines from Down Under. Australian wines have taken the U.S. by storm, totaling 20 million cases in 2004.
A record 278 million cases of wine were sold in the U.S. last year. California sold 180 million cases of that; other U.S. states 25 million and imports almost 73 million cases. Imports were up 4.4 percent while California sales were up only 3 percent, said Fredrikson.
Fredrikson said offshore bottled wines; particularly brands like Yellow Tail from Australian are “just smoking and causing a huge disruption for California mass premium producers.”
Imports, again primarily Australia and other New World wines, captured 51 percent of food store wine sales in the $6 to $9 bottle range. For the $6 to $7 range, they captured 61 percent of sales.
Nine of the 25 hottest SKUs by producer were Yellow Tail, almost twice the total of SKUs (9) for the next two producers, Gallo and The Wine Group, combined.
At the other end of the wine scale, extreme value wines with Charles “Two-Buck Chuck” Shaw leading the parade, continue to take sales away from higher priced wines.
Fredrikson says Bronco Winery Shaw brand sales are slowing down in California where it sells for $1.99 per bottle and $2.99 for it and other extreme value wines in other states. However, these wines still account for 12 percent of all wine volume in 2004.
“Extreme value wines are still a big factor in California home market and growing in other states,” said Fredrikson.
Wine imports into the U.S. reached a record 72 million cases in 2004, said Fredrikson. More than 27 million cases were from New World countries.
Ironically, California exports reached a record 39.2 million cases in 2004, up almost 22 percent compared to only a 3 percent increase of California wines to U.S. markets. The UK is the primary market for California exports.
“It is like giant ships laden with wine passing in the night,” said a puzzled Fredrikson, who figured the biggest winners in this scenario are ship lines.
Slugfest in offing
Competition for markets in the new global wine paradigm will be a slugfest among the big three, Gallo, The Wine Group and Constellation which in 1993 sold a combined 166 million cases of wine, according to Wine Business News. This was before Constellation purchased the Mondavi brand. All own a multitude of brands, including some in Australia.
Fredrikson said recent sales of Mondavi, GSV, Chalone and other winery reorganizations have thrown the wine trade into “turmoil.”
However, the turmoil will subside and in the wake of what Fredrikson predicts there will be more competition than every before. This battle for sales will result in improved overall wine sales, he said.
Behind the “Mammoth 3” will be the “Big 12” wineries like Kendall-Jackson and Brown-Forman Wines fighting for sales. The rest of the 1,500 California wineries will find difficulty in getting wines into wholesalers' catalogs, although Fredrikson said there has been a rebirth of small wholesalers recently.
While much of Fredrikson's comments would point to an unsettled industry, he noted that there has been overall “staggering” growth in the U.S. wine market since 1991 when the French Paradox program was broadcast.
The market has expanded by 105 million cases since that broadcast, noted Fredrikson. This demand for quality table wines has driven up the California grape crush by fivefold in the past three decades. It has also attracted more wine from other countries.
Fredrikson joined the list of optimists at Unified as he looked at the U.S. wine market ahead.
Large wine supply increases both in California and other countries have kept the market highly competitive, but markets gradually are stabilizing as demand catches up with supply.
California grape production imbalance has bottomed out and is moving back towards a more stable market for many varietals.
California producers have released 2001 and 2002 reds, among the best vintages in the world. These strong vintages and rising European wine prices have rekindled trade and consumer in high-end California labels.
The strong euro will force many European wines to go up in price. Also, the strong Australian dollar means higher-end Aussie wines will gradually edge up in price, slowing demand.
U.S. wine demand will remain relatively strong in 2005 as consumers respond to the continued availability of value brands and more aggressive marketing efforts by the giant producers.